Mid-market CEOs and CFOs see compensation rise by over 3%

11 December 2019 Consulting.us 2 min. read
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CEOs and CFOs in mid-market companies saw their total direct compensation rise 3.6% and 3.7% in 2018, respectively, according to consulting firm BDO USA. The firm’s annual executive compensation study surveyed 600 mid-market companies, ranging from $100 million to $6 billion in revenues for financial services, and from $100 million to $3 billion for other industries.

The average CEO’s total direct compensation was $4,077,871, made up of salary ($710,223), bonuses & annual incentives ($895,373), and stock & long-term incentives ($2,472,265).

The average CFO received $1,591,528 in total direct compensation, with $411,467 in salary, $337,966 in bonuses & annual incentives, and $842,095 in stock & long-term incentives (LTIs).

For both executive positions, more than half of compensation was made up of stock and LTIs in 2018. Though average salary and stock & LTIs grew by approximately 2% for CEOs and CFOs, bonuses & annual incentives grew by more than 8% from 2017. 

The report found that average CEO pay was 121x the pay of a median employee, while median CEO pay was 58x that of the median employee at the 600 companies surveyed.

Mid-market CEOs and CFOs see compensation rise by over 3%

BDO also found that companies that put a greater portion of CEO pay “at risk” – that is, in annual and long-term incentives – were likelier to see improvements in financial performance.

“A well-designed compensation plan should lead to better financial results, although critics point to the danger of being overly focused on the short-term,” said Tom Ziemba, a managing director in the compensation consulting practice at BDO. “It’s about finding the right balance. Executive pay plans need to include the right mix of metrics and targets to incentivize long-term financial growth and nonfinancial success.”

The report examined which financial metrics are the best predictors of three-year shareholder return (TSR) performance, and then looked at how many companies tied those metrics to LTIs. The predictive financial metrics varied across industries, however. In healthcare, for example, EBIT and net income were the best predictors of three-year TSR. However, CEO LTI plans in the industry most commonly used EBITDA and revenue – which perhaps merits adjustment.

Another key finding was that larger companies put more CEO pay at-risk, with variable, incentive-based compensation increasing in tandem with company size for both CEOs and CFOs. Most LTI plans tended to favor full-value stock over stock options.